Abstract [en]

This essay aims to examine the relationship between unemployment and GDP from a perspective of Okun's law in the Swedish economy, between the time periods 1994 - 2014 with quarterly data, and also analyze what impact a labor market reform has on the relationship between unemployment and GDP. For analysis of the short-term relationship, Okun’s (1962) gap version along with the Hodrick-Prescott filter (HP) for trend estimation is used. And to investigate stationarity of the data we use an Augmented Dicky-Fuller test. The long-term relationship is analyzed by utilizing an Autoregressive Distributed Lag model to see if potential GDP is dependent on the natural rate of unemployment at a significant level. Our study shows that there is a negative relationship between unemployment and GDP in the short run, and also that a labor market reform that affects the flexibility of the market has a negative impact on the relationship. For the long run we can conclude that there is no relationship between the variables as potential GDP is not affected by the natural rate of unemployment.